Paul Simpson on underspend, planning and harsh times ahead

Room 151: You have just announced a £14m underspend. Was that a pleasant surprise?

PS: No it wasn’t a surprise. We had always planned to underspend in 12-13. We had a four-year plan and we have benefited from doing this early; we had a £180m savings target in 2010 and we delivered the bulk of it within the first couple of years. We had established in the base budget in 2011, a central contingency to provide some headroom to fund things like redundancy costs, and the risk of not delivering some of our savings (given the size and scale of some of this was inevitable). The underspend was a result of that predominantly. The departments themselves underspent by about £3m overall which equates to 0.7% of our net budget and within where we’d want to be as an organisation. So the departments came in very close to what we were anticipating as part of the budget and I remember saying to the politicians as early as April or May last year that – all things being equal – we would underspend this year because we had the contingencies, which we wouldn’t use because a lot of the redundancy costs that we had established the budget for were dealt with early.

Room 151: What are you doing with the money?

PS: Given the scale of the changes it was always part of our plans not to implement additional major changes in 13/14 , given the original plan back in 2010/11 was for 4 years. Given that the on-going need for the central contingency has diminished, this has now been re-allocated to services, which largely negated the need for further savings in 13/14.

We are about to restart the next tranche of major savings. We estimated that our Medium Term gap is in the region of £130m, so it is a very, very challenging financial target to hit over the next four years.

This underspend wasn’t a surprise but that has not always been the case. In the previous two financial year, we did have a large underspend, which we had not forecast. I have been in the post for just over 2 years, and in that time I would like to think the organisation has seen a major improvement in its financial management arrangements, and we now have a much better handle on things. We were predicting an £8m underspend back in July of last year and that grew, by the time we got to December/ January time we were saying it was going to be £10m. So we had been predicting it pretty consistently throughout the year and factored it in as part of our plans for the next four years.

Another part of our plan was to build up reserves and to use some of it to support the Capital Programme, to reduce the reliance on borrowing.

Room 151:You also ended up with lower than anticipated costs for borrowing forming part of the underspend didn’t you?

PS: Yes, that was due to slippage on our capital programme so we haven’t incurred as much interest and saved on our overall borrowing costs.

Of course the expenditure will now just happen later on. Our two main areas of capital spend are highways and schools and we have got a very large programme of refurbishing schools and also meeting basic needs and we predict that we are probably going to be short on our overall capital programme in terms of available funding.

I am advising Members that where possible we minimise the need for the Council to borrow to fund its capital programme. . So for example, we have just paid out our first £10m of a £20m commitment we have to the Department for Transport to dual the A453, which is one of the most congested roads in the country. Work has now started on that and we have committed our own money – the £20m – which has levered in £160m of government funding. It’s estimated the improvements will benefit the local economy by around £540,

The original intention was to borrow that money but adopting the strategy of using in-year underspends, we may well be able to fund it entirely from revenue balances, which will obviously save significant funding going forward on the revenue account.

So that is part of our plan and was part of our 12-13 plan, although I think it is fair to say that I don’t envisage a similar level of underspend in 13-14. The flexibility that we had in previous years has been eradicated.

Room 151: Did you say though that you are planning to increase the general reserve?

PS: Yes, but that is only a temporary increase. We are utilising reserves to support the 13/14 budget. As we front-loaded all our savings, which as I have said, is a major contributory factor behind the underspends in 12-13 and the previous two years, there were no further changes planned for 13/14, so we have used the contingency as a means of balancing the books and we are also taking monies out of our reserves.

So we have increased the reserves on a temporary basis but some of that will disappear over the next 12 months.

Room 151: What sort of amount do you hope to keep in the reserve?

PS: My advice to members is that I would be comfortable with a minimum of £20m. I think we will probably get down to about £25m so we are still reasonably well placed for the short to medium term. But we are reviewing our overall level of reserves, including earmarked reserves, to see whether there is further scope to rationalise them see if we can make more effective use of them in terms of the overall corporate position.

We’re planning to follow the governments steer, which is having a planned and phased release of reserves over the next few years to mitigate against the anticipated funding reductions . That said, we, like any other local authority, are going to have to make some difficult choices over the next few months, so we aren’t alone in that.

Room 151: And the Spending Review is next week.

PS: Yes, I think this next round of reductions is going to be more challenging because the first round whilst very difficult was nonetheless achievable. I don’t think that applies to the situation we now face.

The public’s reaction to this will be key and, as I presume that there will be some significant reductions that will occur locally but on a national scale there could be a great deal of press and public reaction over the next six to nine months. Nottinghamshire won’t be on its own in that, all of local government is going to have a hard time.

Room 151: The public’s response is usually to attack the council.

PS: We’re in a difficult place and as a sector we need to try and respond with one voice. I think we need to be ready to face down the potential criticism that may come our way in terms of things like senior officer pay. The truth of course is that even if all senior officer posts were abolished, that would just be a tiny fraction of the savings that will be required to be made across the country as a whole and local government would lose vital expertise at a time when it is needed more than ever. Sooner or later we will have to make the difficult decisions about exactly what local government is expected to deliver and at what cost. Whilst talk of shared services and new delivery models will get us so far towards meeting the expected savings targets, I don’t they will be enough to meet the scale of reductions we are facing. Local Government is not held in the same public affection as schools and hospitals, so it will be interesting to see the public’s reaction when services they use and cherish have to close because we simply can no longer afford them.

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